Grasim Industries sees challenging 2Q, India

Grasim Industries Limited, an Aditya Birla Group Company, today announced its results for the second quarter ended 30th September 2010.

It was a challenging quarter for the cement sector marked by a fall in prices due to oversupply on the one hand and the slowdown in construction activity during monsoons on the other.

Net profit for the quarter was at INR323 crore as against INR781 crore in the corresponding quarter. The restructuring of the cement business was completed with the merger of Samruddhi Cement Limited in July 2010. The cement division of Grasim now forms part of UltraTech Cement Limited. Grasim’s shareholders hold 19.1% share in UltraTech. As a result, the pro-rata profit belonging to them has been reduced as minority share. If added back for better comparison, the net profit for the quarter works out to INR346 crore.

Cement sales volume grew by eight per cent and dispatch growth was five per cent. Cement prices declined across India in the quarter due to overcapacity and seasonal impact of lower demand during monsoons. The fall was more pronounced in Southern and Western India.

In its white cement business, sales volumes were lower by four per cent as the plant was shut down due to the annual maintenance for extended period.

Lower realisations and higher energy cost has led to decline in operating margins.

In line with its strategy to scale up its presence in the cement sector, brownfield expansions aggregating to 9.2Mta at Chhattisgarh and Karnataka units with related grinding units and bulk terminals are being planned. A capex of INR5600 crore has been earmarked for the project.

An additional capex of INR4550 crore has been allocated for the augmentation of the grinding and distribution facility, logistics infrastructure, captive thermal power plant and modernisation and completion of existing projects.

UltraTech Cement Ltd. through its wholly owned subsidiary UltraTech Cement Middle East Investments Ltd., has completed the acquisition of Star Cement Company LLC, Dubai and its operations in UAE, Bahrain and Bangladesh. Consequently, the total capacity of cement business stands raised to 52Mta.

In terms of the outlook for the Indian cement industry, demand is likely to grow by over 10% in the long term. The increase in consumption, both on account of Government and private spending together with a revival in the corporate capex cycle, will bolster the demand. Good monsoons across the country augur well too.

With strong demand growth, the margins are likely to return gradually back to normalcy sometime in FY’13. The company’s focus on higher volume growth, better logistics support together with cost efficiency, should help in improving performance.
Published under Cement News